Mobile services

Orange Doffs Beret to Spanish Biz for Q1 Growth

France's Orange has registered small improvements in first-quarter sales and profits thanks to a hats-off performance in Spain and a further slowing of its revenue decline at home.

The telco heralded growing interest in "converged" offers, which bundle various fixed and mobile services in a single bill, and said the figures showed that its strategy of investing in the very highest-speed networks was bearing fruit.

Group revenues edged up 0.8%, to about €10.1 billion ($11 billion), compared with the year-earlier quarter, while "adjusted" EBITDA rose 2%, to nearly €2.6 billion ($2.8 billion).

The results prompted Orange (NYSE: FTE) to confirm its previously issued guidance of growth in adjusted EBITDA this year, compared with 2016, although Orange's share price was trading 1.2% lower in France at the time of publication.

Orange competes in some of Europe's most fiercely competitive markets and has struggled in France ever since broadband rival Iliad (Euronext: ILD) launched a low-cost mobile service in early 2012.

But after shrinking 0.9% in the fourth quarter of 2016, revenues in France were down as little as 0.1% in the first quarter, to about €4.4 billion ($4.8 billion), thanks largely to growth in the fixed broadband market.

Fueled by rising ARPU (average revenue per user), revenues from fixed broadband services in France were up 5.5%, after increasing 5% in the preceding quarter. The mobile sales decline, meanwhile, slowed from 5.1% to 3.3% over the same period.

French customer growth last year came largely at the expense of the Numericable-SFR business, which forms a large part of the Altice cable group and had previously put cost cutting ahead of sales and marketing activities.

But Orange's latest results suggest customer gains may be increasingly elusive in future.

With nearly 11 million broadband customers in total, Orange picked up another 73,000 in the quarter, having added 96,000 in the last three months of 2016 and more than 400,000 in the year-earlier period.

Its mobile business, meanwhile, lost 76,000 customers as contract gains failed to offset losses in the prepaid business.

Altice has yet to report its first-quarter earnings but flagged improvements at its French business in the final quarter of 2016 and could well mount a stronger challenge to Orange this year. (See Altice to Slash 2017 Capex Despite US FTTH Plan, French Rivalry.)

Moreover, the group story of marginal growth would have been very different were it not for the Spanish subsidiary, which reported revenue growth of as much as 8.5% in the first quarter, to €1.3 billion ($1.4 billion), making it Orange's second-biggest country division.

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Like France, Spain is home to several operators building out high-speed fixed and mobile networks, including incumbent Telefónica and the Spanish unit of UK-based Vodafone Group plc (NYSE: VOD).

Those players have still to file results for the first quarter, but will be hard pressed to beat Orange: Telefónica reported "flat" revenues from Spain in the last quarter of 2016, while Vodafone's were up less than 1%.

In a results presentation, Orange claimed that its strategy of bundling services had led to a 5.2% increase in what it is now calling "average revenue per convergent offer," to €55 ($60) per month.

That increase compared very favorably with zero growth in this measure in France and a decline of 9.8% in Poland, Orange's third-biggest country market, where revenues nevertheless edged up 0.5%, to €652 million ($711 million).

Details reveal that Orange Poland benefited from a "sharp increase" in equipment sales, linked to the rollout of new payment plans, and that mobile service revenues accordingly fell 6.6%, with fixed-line sales down 5.4%.

Orange had mixed fortunes elsewhere in Europe, reporting a revenue decline of 0.7% in Belgium and Luxembourg, to €307 million ($335 million), but growth of 3.2% in its central European markets, to €409 million ($446 million).

There was disappointment, too, in Africa and the Middle East, where the rate of sales growth fell to just 0.7%, giving Orange about €1.2 billion ($1.3 billion) in quarterly revenues, from 1.6% in the fourth quarter of 2016 and as much as 4.4% in the year-earlier period.

The slowdown raises fresh doubts over some of the bullish targets that Orange announced for its Africa business in 2015, and hints at growing challenges in the region as its mobile markets become increasingly saturated. (See Orange's Africa Targets in Doubt After Sales Slowdown and Orange Aims for 20% Sales Growth in Africa.)

Orange also recorded a 2% revenue decline at its enterprise business, to about €1.8 billion ($2 billion), citing "pressure on voice" but insisting that IT and integration services were still registering growth.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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